Would loan guarantees by a shareholder increase his basis in an S Corporation?
It appears that there are "no tax break for owners who guarantee loans to an S corporation." The Tax court has ruled that "Guarantees don’t increase owners’ deductible losses. That is, they do not contribute to the basis of the shareholder/owner of the S Corporation. This is very important as owners can only deduct losses in the S corporation to the extent of their basis.
In other words, the Owners of S companies can deduct losses only to the extent to what they invested in the firm, including any direct loans or advances they have made to the S Corporations!